The dollar-yen pair is showing increased volatility. On Friday, sellers of USD/JPY updated the local low, reaching 129.84, whereas today, buyers are already testing the 132nd figure. Traders cannot determine the vector of price movement, but the pair fluctuates in a wide price range. The nervousness of market participants is quite understandable since tomorrow, February 14, the next Governor of the Bank of Japan will be known.
Moreover, key data on the growth of Japanese economy in Q4 will be published on Tuesday. On top of everything else, a crucial inflation report will be released tomorrow in the USA, which will show the dynamics of consumer price index in January. All of these fundamental factors could cause serious price turbulence. Therefore, current price fluctuations of USD/JPY should be treated with great caution.
Is Ueda not an ally of the yen?
Last week, the Japanese currency strengthened its position throughout the market after Bank of Japan Deputy Governor Masayoshi Amamiya turned down offer to succeed current Governor Haruhiko Kuroda. His candidacy was to be submitted to Parliament for approval on February 10. Amamiya is a supporter of a soft monetary policy, so his decision not to run for the position of the head of the central bank had an impact on USD/JPY: on Friday, the price updated the weekly low, denoting around the 129th figure.
Moreover, the Japanese media (Nikkei Asia in particular) announced the name of the new favorite of the election race: according to the insiders, on February 14, the government will nominate Kazuo Ueda, who was a member of the Governing Council of the Bank of Japan. Initially, the market was dominated by the view that he was more hawkish than Kuroda. However, it turned out later on that was not the case. At least in his brief interview to Reuters, Ueda called the Bank of Japan's policy "adequate." In his opinion, Japanese regulator should continue to implement accommodative policy "by making logical decisions and clearly explaining its position."
Such comments disappointed sellers of USD/JPY, so it is not surprising that today the pair is already testing the area of the 132nd figure.
However, only journalists have "appointed" Ueda so far: government officials have not commented on the information about his candidacy. Moreover, some analysts urge not to make hasty conclusions and treat media reports with great caution. According to them, in the past, the government eventually nominated other candidates amid harsh criticism of the candidate "announced" by journalists or other political reasons.
Therefore, the intrigue remains here, which means that the growth in the price of USD/JPY looks unsteady.
Note that the last meeting of the Bank of Japan under the leadership of Kuroda will take place on March 10, and the first meeting of the central bank under its new head will be held on April 28.
Important releases on Tuesday
Japan's economic growth data for Q4 2022 will be released on February 14. In Q3, Japan's GDP took an unexpected downturn. The drop in the economy was mainly due to higher prices, which had a negative impact on household spending in the country. Also the downward dynamics was due to the weakening of the yen against world currencies.
Since fall last year, the yen has appreciated by more than 2,000 points against the dollar. But inflation in Japan still continues to update multi-year records. According to the latest data, the country's overall consumer price index rose to 4.0%, excluding food and energy prices by 3.0%, and corporate goods price index jumped by 10.2%.
At the same time, according to the forecasts of most experts, Japanese economy will show growth in the fourth quarter, leaving the negative area (growth by 0.5% is estimated). While the GDP deflator index may jump to 1.1% (the indicator will rise above zero for the first time since 2020).
If the above indicators come out at the forecast level, the yen may receive support, as the market will again increase hawkish expectations regarding possible decisions of the Bank of Japan in the second half of the year.
Conclusions
Tomorrow, the dollar-yen pair will be in a zone of price turbulence. In addition to the Japanese government's personnel decisions and the Japanese GDP growth data, there will be a report on Tuesday on the Consumer Price Index growth in the USA. Such major fundamental factors can trigger a volatility storm, and it is impossible to foresee the price movement vector here. That is why, for the time being, it would be best to maintain a wait-and-see attitude in the USD/JPY pair, as the high-profile events of Tuesday might "redraw" the fundamental picture considerably.